Credit Rating: Baa1 / BBB+ / BBB+
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Fundamental View
AS OF 22 Dec 2023Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a slight focus on the retail segment and targets to increase margins by growing personal unsecured lending. Recent credit costs have been elevated in 9M23 due to the retail exposure.
The capital buffer is strong with a CET1 ratio of 17.5% at the Holdco (SCB X) level and 16.6% at the Bank level at Sep-23. It announced a major business overhaul in September 2021 to establish a new parent company called SCB X to segregate the group’s core banking services from its new fintech and digital businesses and to enable greater flexibility and independence.
Business Description
AS OF 22 Dec 2023- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.35% owned by the King of Thailand, and a further 23.10% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 36% corporate, 17% SME, and 47% retail as of end-September 2023.
Risk & Catalysts
AS OF 22 Dec 2023The bank’s new strategic direction is sensible given limited domestic growth opportunities, but it comes with execution risk since the fintech and platform space are new to SCB, as well as higher credit costs. However, we take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and capital support to the Gen 2/3 businesses is subject to a minimum 16% CET1 ratio being maintained at the bank.
High household debt and challenged SMEs remain as longstanding issues in Thailand. SCB X’s higher NIM and low-40%s cost-income ratio provide comfortable room to absorb its elevated 9M23 credit costs (~200 bp) and maintain a similar level of returns as peers, but the sluggish Thai economic recovery may keep credit costs high due to its larger Blue scheme and unsecured retail books, thereby limiting further returns improvement relative to peers.
NIM expansion going forward may be more limited as well due to difficulty in passing on rate hikes in full to the large retail book without asset quality ramifications.
Key Metrics
AS OF 22 Dec 2023THB mn | FY19 | FY20 | FY21 | FY22 | 9M23 |
---|---|---|---|---|---|
PPP ROA | 3.11% | 2.58% | 2.63% | 2.50% | 2.94% |
ROA | 1.3% | 0.9% | 1.1% | 1.1% | 1.3% |
ROE | 10.4% | 6.7% | 8.4% | 8.3% | 9.3% |
Equity/Assets | 13.5% | 12.6% | 13.4% | 13.5% | 13.3% |
CET1 Ratio | 17.0% | 17.2% | 17.6% | 17.7% | 17.5% |
Reported NPL ratio | 3.41% | 3.68% | 3.79% | 3.34% | 3.30% |
Provisions/Loans | 1.70% | 2.14% | 1.84% | 1.45% | 1.89% |
Gross LDR | 98% | 93% | 93% | 93% | 96% |
CreditSights View
AS OF 22 Jan 2024SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was poor. It created a new HoldCo structure (SCBX) in 2022 to shift digital units and unsecured retail loans outside the bank, and pledged a >16% CET1 ratio at the bank. The BOT has also ringfenced the bank which further reduces the risk for the SCBTB bonds. However, the COVID Blue scheme book still sits within the bank and is the highest % of loans among peers (12% at 4Q23). Management claims to have taken the necessary provisions for future slippages from this book over the next 1-2 years but we are cautious. FY24 credit costs could stay at FY23’s elevated levels. Still, they can be comfortably absorbed as FY23 returns led peers despite the high credit costs.
Recommendation Reviewed: January 22, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 22 Dec 2023Kasikornbank (KBank; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in 4Q22 due to its larger SME exposure, and credit costs have remained elevated in 9M23.
Margins are the highest among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition. Rising base rates in 2023 have provided a boost, but the bank is now focusing growth on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 22 Dec 2023- Kbank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-June 2023, the bank's loan mix by segment consists of 35% corporate, 31% SME, 28% retail and 6% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 22 Dec 2023High household debt and challenged SMEs remain longstanding issues in Thailand. KBank’s higher NIM and low-40%s cost-income ratio provide comfortable room for elevated 9M23 credit costs (~200 bp) to be absorbed and a similar level of returns as peers to be maintained, but the sluggish Thai economic recovery may keep credit costs high due to its larger Blue scheme and SME books, thereby limiting further returns improvement relative to peers. The balance sheet cleanup effort, which began in 4Q22, is also continuing into 2024.
Loan growth has been middling across the Thai banks due to a combination of easing pent-up retail demand, a focus on quality given elevated household debt and challenged SMEs, and balance sheet cleanups.
NIM expansion going forward may be more limited as well due to difficulty in passing on rate hikes in full to the non-corporate segments without asset quality ramifications, and a shift in focus away from the higher yielding unsecured retail and SME segments given asset quality pressure.
Key Metrics
AS OF 22 Dec 2023THB mn | FY19 | FY20 | FY21 | FY22 | 9M23 |
---|---|---|---|---|---|
PPP ROA | 2.72% | 2.44% | 2.38% | 2.36% | 2.55% |
ROA | 1.20% | 0.85% | 0.98% | 0.86% | 1.03% |
ROAE | 9.9% | 7.0% | 8.3% | 7.3% | 8.6% |
Equity / Assets | 13.8% | 13.4% | 13.1% | 13.4% | 13.8% |
CET1 Ratio | 16.2% | 15.5% | 15.5% | 15.9% | 16.7% |
Gross NPL ratio | 3.65% | 3.93% | 3.76% | 3.19% | 3.11% |
Provisions / Loans | 1.74% | 2.05% | 1.73% | 2.11% | 2.07% |
Gross LDR | 97% | 96% | 93% | 91% | 91% |
CreditSights View
AS OF 22 Jan 2024Kasikornbank is the 2nd largest bank in Thailand. We were cautious about its one third loan book exposure to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. The bank is doing cleanups in FY23 and FY24, and has switched to focusing growth on the safer segments which will weigh on the NIM. FY24 credit costs could stay close to FY23’s elevated levels if growth remains sluggish and uneven given the larger SME and Blue scheme book. They can be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers.
Recommendation Reviewed: January 22, 2024
Recommendation Changed: June 09, 2023